Inventory optimization factoring in deferred order payments and obtaining revenue delays at rental storage

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MAGAZINE  №6 (95) December 2019


CATEGORY  Inventory management Optimization and mathematical modelling



 The article presents a special modification of the EOQ-formula for the task of minimizing inventory management costs, for the model with rental storage, taking into account the specifics of the supply process. Modifications of special EOQ formulas for systems of the specified type were made directly for models important in the format of the corresponding business. These are systems for which a special concept of effective deliveries is introduced, when the specified delays for outgoing cash flows make it possible to pay for the order and the corresponding costs of the supply chain from the proceeds at the re-order interval. It will give managers the opportunity to find the optimal inventory management strategy if it is necessary to take into account the combined impact of a number of factors affecting decision-making procedures. We are talking about the need to consider the following factors: 1) the time value of money when cash flows of the analyzed supply chain are modeled; 2) the time delay granted to pay for the value of the delivered order; 3) pre-negotiated allowable for the duration of possible delays in the receipt of revenue from goods sold. The purpose of the article is to draw the attention of managers to existing (and still not used) opportunities to improve the efficiency of inventory management systems by taking into account these factors for a simulated supply chain and provide the appropriate tool as part of the task. The developed approach to inventory optimization while minimizing the costs of the supply chain, significantly will modify the EOQ – formula format to determine the size of the order. The optimal supply volumes taking into account the indicated modification, will become significantly smaller (in comparison with the traditional recommendations of the theory), which will favorably affect the value of working capital, the amount of capital frozen in stocks of goods, and the profitability of the supply chain itself. Formed restrictions on the allowable delay in revenue will determine the fulfillment of the conditions for the effectiveness of supply established in this article. In addition, the application of the developed model is presented on the example of a practical situation.

 Electronic version

 Keywords: inventory management time value of money deferred order payments revenue delay vehicle capacity vehicle cargo capacity


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